Kamp v Transurban Limited
[2009] VCC 611
•15 June 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
Case No. CI-08-03936
| DARRYN JAMES KAMP | Plaintiff |
| v | |
| TRANSURBAN LIMITED | Defendant |
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| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 26, 27, 28 May and 1 June 2009 |
| DATE OF JUDGMENT: | 15 June 2009 |
| CASE MAY BE CITED AS: | Kamp v Transurban Limited |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0611 |
REASONS FOR JUDGMENT
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Catchwords: Employment contract – original contract provided for three months’ notice of termination - whether new contract formed as a result of change in plaintiff’s position – what are the terms of the new contract – whether terms of contract breached
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M.G. Rinaldi | A.J. Macken & Co |
| For the Defendant | Mr P.J. Wheelahan | Freehills |
| HER HONOUR: |
1 The plaintiff was originally employed by Transurban City Link Ltd pursuant to a written contract dated 29 October 2001 as a financial controller. His written contract provided for three months’ written notice of termination. His employment was subsequently terminated on 22 August 2008 and he was paid, inter alia, three months in lieu of notice and 11 weeks severance payment.
2 However, the plaintiff claims that, by reason of his appointment as general manager, finance, a new contract of employment was formed in October 2007 with an entitlement to reasonable notice. He also claims various entitlements to other amounts, including certain incentive payments, which will be set out more fully below.
3 The issues in the case are therefore as follows:
(a)
whether a new contract was formed by reason of the plaintiff’s appointment as general manager finance;
(b)
if yes, what were the terms and conditions of that contract; and;
(c)
whether there has been a breach of any of the alleged terms and conditions.
BACKGROUND
4 By correspondence dated 26 October 2001 addressed to the plaintiff, an offer was made to the plaintiff for the position of Financial Controller commencing Tuesday 30 October 2001. Paragraph 1 of that letter indicated that the position would report to the finance director, Mr Geoffrey Phillips.
5 Paragraph 2 of that letter included the following:
“The principal accountabilities of the position are outlined in the attached position
description. These duties may be reasonably varied by the Company and you
1
may also be required to perform such other duties as the Company may
reasonably require from time to time…”6 In terms of the salary package, the total employment cost (TEC) including superannuation and other benefits was $160,000.
7 Paragraph 4 of the correspondence also stated that an “annual performance incentive of up to 15 per cent of TEC is available in recognition of your overall performance including the achievement of personal and business key performance indicators (KPIs) over the previous 12 month period.”
8 Paragraph 10 of that letter read as follows:
“You will be required to comply with any reasonable directions given from time to time by the Company. You will also be required to comply with the workplace policies, procedures and rules of employment determined and amended by the Company from time to time and contained in the Company’s Policies and Procedures available on the Company’s Intranet (a summary of which is attached) and the Code of Conduct, which is incorporated into your terms and conditions of employment.”
9 There is an employee acknowledgment wherein it appears to be acknowledged that policies concerning email, privacy, the internet and the code of conduct were received by the plaintiff.
10 Paragraph 23 of the letter read that, after the expiration of the probationary period, either party may terminate the employment by giving three months’ notice in writing. Payment in lieu of notice may be given by the company or forfeited by the employee for any part of the notice period not given. The paragraph also preserved a right to summarily dismiss in cases of misconduct.
11 The plaintiff’s signature appears on the final page of that letter.
12 The position description referred to in the correspondence stated that the purpose of the position was to “assist the organisation to expand and diversify through the proactive management of its financial resources.” It also prescribed the following “key accountabilities”: financial accounting, financial management, compliance, taxation, payroll, insurance, reporting, budget
2
management and staff management.
13 On 1 January 2002, the plaintiff’s employment was transferred to the defendant, then known as Transurban Infrastructure Developments Limited by consent.
14 By correspondence of 11 July 2002 the plaintiff was advised that the “Annual Remuneration Review Process” was complete and the Board had approved an increase in the plaintiff’s salary from $160,000 to $165,000.
15 Thereafter the plaintiff was advised of yearly TEC increases culminating in correspondence of 1 August 2007 wherein the plaintiff was advised that the Board had approved an increase in his TEC to $320,000.
16 On 15 July 2004, the plaintiff was appointed to the role of Group Financial Controller. The correspondence he received and signed at that time read as follows:
“This is to confirm changes made to your current position description. Your new title is Group Financial Controller. All other terms and conditions are as stated in your original letter of appointment. Your position description will need to be updated to reflect this change.”
17 In October 2007, Mr Michael Burnett was appointed to the role of Group Financial Controller, reporting to the plaintiff. In a position description for the Group Financial Controller this role was said to “support” and “report to” the General Manger Finance.
18 The plaintiff claims that in October 2007 he was appointed to the newly created senior manager position of General Manager Finance. The only documentary evidence of this change was an email dated 7 December 2007 from David Cardiff, the Human Resources Manager, sent to “New starters and change and transfer” (a mailing group). The email requested that the addressee should note the change of title for Darryn Kamp to General Manager Finance. The email suggests that the change was effective on 1 December 2007, although Mr Cardiff accepted that the plaintiff had been
3
acting in that role since October 2007 given his previous title of group financial
controller was being used by Mr Burnett.19 By correspondence of 12 August 2008, the plaintiff was advised that his employment was to be terminated as at 22 August 2008 on the basis of redundancy. On that termination, the plaintiff was to be paid the following benefits:
(a) one month’s salary in lieu of notice;
(b) 11 weeks severance;
(c)
a performance incentive payment of $148,100 which included $90,000 as short term incentive payment and $58,100 in respect of a bonus for the capital beltway project;
(d) his outstanding annual leave entitlement;
(e) a gratuity payment of $33,300.
20 By correspondence of 13 August 2008, the plaintiff was subsequently notified that he would be paid three months’ rather than one month’s salary in lieu of notice.
21 The plaintiff subsequently issued this proceeding.
22 In an Amended Statement of Claim dated 25 May 2009, the plaintiff claims loss and damage for breach of contract as follows:
(a) for 12 months’ salary in lieu of notice as reasonable notice; (b) for 12 months’ salary as a redundancy; (c) for various amounts the plaintiff is said to be entitled to pursuant to performance incentive schemes, being─
(i)
an amount of $160,000 pursuant to an “uncapped incentive” (less incentive paid of $90,000);
(ii) amounts he is said to be entitled to pursuant to project
4
bonuses schemes; being
(A) $125,000 for the Capital Beltway project (less
$58,100 paid);
(B) $125,000 for the Transurban Drive project (no
bonus paid)
(d) a shortfall in his salary from 1 July 2008 to 22 August 2008 on the basis that he has become entitled to a pay rise; (e) a shortfall in his salary on the basis of accrued but untaken annual leave; and (f) long service leave that would have accrued and become payable had 12 months’ notice been given.
23 The case proceeded on the basis that the Court would determine the plaintiff’s entitlement in these categories. The parties were then to confer and provide a minute of order which reflected the findings of the Court.
WITNESSES
24 There were two witnesses called on behalf of the plaintiff, the plaintiff himself and the former Chief Financial Officer of the defendant, Mr Brant (who was a subpoenaed witness).
25 There was one witness called on behalf of the defendant, Mr Cardiff, Group General Manager of Human Resources for the defendant.
26 The plaintiff was a straightforward witness and no attack was made on his credit. He gave his evidence carefully and responsibly and I am satisfied that his evidence can be relied upon.
27 Mr Brant was also an impressive witness and there was no challenge directed against his evidence.
28 There was some defensiveness in the way Mr Cardiff gave his evidence,
5
particularly in terms of the change in the plaintiff’s role. Moreover, his evidence in relation to the Drive bonus was unsatisfactory as I will explain below.
29 However, the case is not really concerned about the credit of witnesses but whether the evidence establishes the entitlements sought.
WHETHER ANY NEW CONTRACT WAS FORMED
Principles
30 In the case of Quinn v Jack Chia (Australia) Ltd[1], Ashley J (as His Honour then was) stated that where employer and employee agree to an alteration in the employee’s duties and responsibilities which is profound, a court should be more ready to hold (unless the original contract of employment provided for the contingency) that a new contract has replaced the old; or at least that the old contract, as varied, contained terms objectively appropriate to the new relationship created.
[1] [1992] 1 VR 567 at 576-7
31 Further Ashley J concluded that the change to the plaintiff’s situation in the Chia case was “exceptional, far reaching, not within the original contemplation of the parties and not comprehended by the contract initially made between them; and that it did give rise to the institution of a fresh contract of service between the plaintiff and the defendant rather than merely a variation of the earlier agreement.”[2]
[2] [1992] 1 VR 567 at 577-8
Evidence
32 The plaintiff’s evidence was that his role developed. Initially, he was the person responsible for the preparation of accounts. He had four staff directly reporting to him but indirectly he had nine to ten reporting. He was responsible for only two major reporting entities and the company had a market capitalisation of $2.3 billion.
33 However, increasingly his role became devoted to planning and re-structuring. This was coincidental with the changing role of Transurban. Although the function of Transurban originally related solely to City Link, the corporation generally went on to embark on a program of different business development activities both domestically and internationally. This led to involvement in many projects including the Hills Motorway, the construction of Westlink M7, the acquisition of the Pocahontas Parkway in Virginia, the Sydney Roads Group and the TIL restructure. Other projects included the creation of the Drive Project, which was a vehicle through which investors could invest in a tax efficient manner to provide a fund for the acquisition of projects.
34 The plaintiff’s role was that he was heavily involved in each of these projects and that this increased his responsibility into business development activities.
35 By the 2007-8 year the number of people reporting to the plaintiff was in the realm of 40 (approximately 12 directly) with the market capitalisation of the group up to 8 billion.
36 Mr Brant confirmed that the position of general manager finance did not exist prior to the plaintiff taking on the role and that the role of group financial controller was assumed by Mr Burnett.
37 In comments in the performance review relating to the 07/08 year Mr Brant also stated:
“Position description changed during the year with the appointment of a new GF controller. In assuming the GM finance role Darryn has more of an overseeing role and has become more actively involved in project/tax/structure activities as well as assuming responsibility in reviewing and involvement in subsidiary and minority interest companies and PACE[3]. The important aspect to ensure going forward is that the role has considerable actions and accountability and is a major part of the finance function.”
[3] The plaintiff described this as the project and capital expenditure committee
38 Mr Cardiff gave evidence that the principal accountabilities of the plaintiff remained essentially the same. However under cross examination he said the plaintiff was brought in to provide “some leadership in the financial area and to create greater capacity in that area as our business was growing and it did allow Darryn to do other elements of his existing role, primarily taxation and the work that he was doing with us and has always been doing with us on projects”.
39 However, he conceded that it was “fair” to suggest that Mr Burnett’s role was primarily in routine statutory and board reporting, and routine accounting work. Further, that by reason of his appointment as general manager finance there was a new level of management occupied by Mr Kamp between the Group Financial Controller and the Chief Financial Officer. He also conceded that there was no thought of the role of general manager finance in 2001 or 2004.
40 In an organisation chart as at 27 May 2008 the plaintiff is shown at the same level as 7 others reporting to Mr Brant the Chief Financial Officer. There also appear to be a number of positions below him including Mr Burnett the Group Financial Officer.
Findings
41 I accept that the plaintiff’s role expanded in terms of complexity and seniority.
42 The defendant relied on paragraph 2 of the original contract which permitted the employer to “reasonably vary” the duties. However, in my view the change in role to the newly created position of general manager finance was more than a reasonable variation to duties as it altered fundamentally the very position or office the plaintiff was undertaking.[4]
[4] Reilly v Praxa Ltd [2004] ACTSC 41 at [16]
43 Mr Wheelahan, Counsel for the defendant, highlighted that the plaintiff’s accountabilities had not altered; that he continued to report to the Chief Financial Officer; and that his remuneration had not altered.
44 However, the evidence, including that of Mr Cardiff, suggested that the plaintiff’s role had evolved into a very different leadership role involving more strategic and high level tax and structuring work. I further accept the submission of Mr Rinaldi, Counsel for the plaintiff, that it was only upon the recognition of the need to create a new general manager position (which had not previously existed) that a new contract of employment was clearly formed.
45 I also accept the submissions of Mr Rinaldi, that, notwithstanding that the plaintiff continued to report to the CFO it was a “jump up into a new and higher level of management” as is clear from the organisational chart tendered. Finally, although the new title was not accompanied by any increase in remuneration, the remuneration at the time of the change at $320,000 reflected the very different level at which the plaintiff was operating.
46 In the light of all the evidence above and particularly:
• that Mr Burnett had been appointed to the old position of the plaintiff and now reported to the plaintiff; • that the appointment of Mr Burnett enabled the plaintiff to leave the more routine work to him; • that the position, in fact, was a newly appointed position which was not even considered at the time of the original contract; • that there was an increase in the number of people reporting to the plaintiff coincidental with the higher level of management; • that the employer had also changed completely (with its capitalisation increasing from approximately 2 to 8 billion) which impacted on and altered the plaintiff’s role;
I accept that the change was “profound” and not comprehended by the contract initially made between the parties.
47 I therefore accept that the parties were contracting on a separate and different
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basis in 2007.
48 It is significant in this respect to note that neither the original contract nor the July 2004 contract (when the plaintiff was appointed to the position of Group Financial Officer expressly on the same terms as the Financial Controller contract) continued to apply upon the plaintiff’s appointment as General Manager Finance.
49 It is therefore important to ascertain what were the terms and conditions of this new arrangement in the absence of a written document. This will be done in respect of each of the areas to which the plaintiff claims an entitlement prior to considering whether there has been any breach.
NOTICE PROVISION
Applicable Term
50 It is a term implied by law that there be reasonable notice as an incident of the employment relationship in the absence of an express term as to notice.[5] The defendant, correctly in my view, did not take issue with this proposition in the event a new contract was held to be created.
[5] Rankin v Marine Power International Pty Ltd (2001) 107 IR 117 at [206]-[207]
Whether term breached
51 The next issue is whether or not the giving of three months was a breach of the “reasonable notice” provision.
52 In Chia, Ashley J regarded as principally important the worker’s age when he entered the contract, the seniority and importance of, and salary commanded by the position, the fact that the parties would have envisaged that the job would be long term, the fact that the plaintiff had given up security to enter the defendant’s employment and that the plaintiff’s reasonable expectation of superannuation was destroyed.[6]
[6]
53 In Rankin[7], the court suggested that relevant factors include the high grade of the appointment, the importance of the position and size of the salary, and the nature of the employment. Factors which pertain to the particular employee are length of service, professional standing and age, qualifications and experience and expected time to find alternative employment.
[7]
54 The defendant emphasized the evidence of Mr Cardiff which was that General Managers generally obtained a three-month notice period. The difference as to why people were on a six-month notice period was that it applied, firstly, to those who directly reported to the Managing Director and, secondly, if they were a member of the executive team.
55 Mr Rinaldi suggested the notice applicable to other employees was irrelevant. However, in oral submissions he conceded that it was a relevant factor. In my view this was a fair concession as what is reasonable must be considered in the particular context. I note that in Chia Ashley J did not ignore evidence that a man technically senior to Mr Quinn had an agreed period of notice of three months. However, this did not “resolve the question what period of notice should be accounted reasonable in all the circumstances of Mr Quinn’s engagement.”[8]
[8]
56 Both Counsel referred me to a number of cases which supported their case. Ultimately however the question of what is reasonable notice must be considered in relation to the particular circumstances at the time when the contract is terminated[9]
[9] Rankin at [219] and [225]; Chia [1992] 1 VR 567 at 580
57 In my view there are a number of factors supportive of a significant period of notice beyond three months, and, possibly, indicative of a period of 12 months as sought. Thus, the position itself was a senior one of some importance in the organisation as reflected by the significant remuneration package. In terms of the plaintiff himself, his length of service was approximately seven years; he was also well qualified and had previous experience with chartered firms including KPMG as well as corporate experience with CRA (later Rio Tinto). He possessed a bachelor of commerce degree, was a charted accountant and a member of the Australian Institute of Chartered Accountants and the Australian Institute of Company Directors.
58 Against this, the plaintiff was only 42 when he was terminated. He had also not given up any position of security prior to working with Transurban having most recently been working on a contract basis for seven to eight months.
59 In my view, weighing up all the factors, the appropriate period of reasonable notice should be nine months.
60 I do not regard this period as being in excess of what either party would have considered reasonable when they turned their minds to the topic.[10] I have taken into account that managers generally were only given three months on the evidence of Mr Cardiff. However, a number of general managers appeared to be entitled to six month notice periods and there were some “special contractual arrangements” where 12 months payments were provided for.[11] In such circumstances a period of nine months would not have been regarded as “in excess” of what would have been considered reasonable.
[10]
[11]
61 It follows that there has been a breach of the term of reasonable notice of nine months by giving only three months. Instead, the plaintiff should have been given notice so that his contract came to an end nine months after 22 August 2008, being 21 May 2009.
Deductions/ additions
62 The defendant submits that various deductions should be made from any notice period, namely, payments made to the plaintiff which the defendant was not contractually bound to make: the gratuity, the severance payment, the bonus and incentive payments. The plaintiff was also provided 10 days additional notice from 12 to 22 August 2008.
63 There is some divergence in authority as to whether there should be an offset in the case of severance payments, where the severance payment is not of the same character as the damages claimed. [12] However, I will presume that the offset should not be denied by reason only of the different purposes which damages and severance payments are intended to serve.[13]
[12]
[13] This is consistent with Reynolds v SouthCorp Wines Pty Ltd (2002) 122 FCR 301 at [54]and Reilly v Praxa [2004] ACTSC 41 at [35]
64 In cases where an offset has been permitted, there appears to have been no contractual entitlement to the relevant payment which has been regarded as a voluntary or ex gratia payment.[14] For reasons that will be set out below, in my view the plaintiff was contractually entitled to the payments he received for severance and also bonuses.
[14] See Reilly v Praxa [2004] ACTSC 41 at [29] and [36] ; Kirchner v Mayne Nickless Ltd [2000] VSC at [98],
65 Moreover, applying ordinary contract principles, the plaintiff is entitled to be put in the same position as he would have been in had the contract been performed. In my view the defendant would have adopted its practices and policies to make redundancy payments had the contract come to an end in May 2009 such that the plaintiff would still have received a benefit. In the case of the bonuses these had already been the subject of Board approval.
66 In these circumstances (which do not depend on contractual entitlement but factual matters) the defendant is not entitled to an offset as the plaintiff would have received the payments in any event. A similar approach was utilised in the case of Reynolds.[15]
[15] Reynolds v SouthCorp Wines Pty Ltd (2002) 122 FCR 301 at [65]
67 It follows that the plaintiff is entitled to nine months notice without deduction for the amounts he received as severance and bonuses. However, Mr Rinaldi conceded that there should be deductions for the voluntary gratuity payment; the three months notice already paid; and the 10 days extra notice.
68 Mr Rinaldi also submitted that the pay rise which would have been likely to have been granted should be included in the calculation of the notice period. This was applied in the case of Chia.[16]
[16] (1992) 1 VR 567 at 581
69 For reasons expressed below, in my view the plaintiff has a contractual entitlement to the salary increase. In any event, if the correct notice had been given in my view as a matter of fact it is likely that a salary increase of five per cent would have been awarded back dated to 1 July.
70 Accordingly I find that the plaintiff is entitled to a notice period of nine months based on a salary at five per cent increase to TEC of $336,000. From this should be deducted the gratuity; the amount of notice of three months already given as well as the extra 10 days notice given.
REDUNDANCY PROVISION
Principles
71 As indicated already, there was no written document provided on the appointment of the plaintiff as General Manager Finance.
72 The Amended Statement of Claim claimed there were various terms which were to be implied or incorporated into this contract on the basis of a course of dealing. In oral submissions Mr Rinaldi claimed that these were either to be “implied” or “incorporated” from a course of dealing.
73 The actual terms of a contract are usually those expressed in words by the parties themselves. However, the law recognises that the parties may have intended to include terms in their contract which are not articulated. In terms of implication, a court may imply terms as a matter of “presumed or imputed intention.”[17]
[17] Hawkins v Clayton (1988) 164 CLR 539 at 570
74 In Chia Ashley J stated that in considering whether a term should be implied, and if so, what that term should be, the court should determine the presumed intention of the parties by an objective evaluation of the circumstances.[18]
[18] (1992) 1 VR 567 at 581 at 579
75 The defendant relied on the criteria referred to in BP Refinery Pty Ltd v Shire of Hastings.[19] However, as described by Deane J in Hawkins v Clayton, care must be taken in applying that criteria where there is no formal written contract and where the parties have not attempted to spell out all the terms of their contract but have left most or some of them to be inferred or implied. [20] In that case the function of a court is to establish what the contract is, the parties not having themselves fully stated the terms.
[19] (1977) 180 CLR 266 at 283
[20] (1988) 164 CLR 539 at 571
76 As stated by Deane J in Hawkins[21]:
[21] Ibid
“ The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties.”
What term should be “implied or incorporated”?
77 The plaintiff alleged that the court should imply a term that the plaintiff would be entitled to the benefit of the defendant’s corporate policies as to employment conditions including redundancy and would be entitled, as a senior manager, to a redundancy payment at the defendant’s discretion, such discretion to be exercised reasonably in good faith and commensurate with the redundancy payments paid to senior managers within the Transurban group of companies (paragraph 12(b) Amended statement of claim).
78 In terms of evidence, a document dated 15 January 2002 was before the Court entitled “Policy, Employee Relations: a Transurban Group Policy.” Its classification is given as “company confidential” which is defined as where “documents are to be kept confidential within the Transurban Group, and used for normal business activities by the general office population.”
79 Pursuant to clause 5 of that policy document, every employee was to be issued with a written employment contract outlining the general terms and conditions under which employment was offered. The clause continues:
“Other terms and conditions will be referred to/contained within the Company Code of Conduct, Company Policies and Procedure documents, any related Certified Agreements and any legislative requirements such as the Workplace Relations Act and relevant Awards.”
80 Clause 10.2 of that policy document is entitled “Severance Payments”, and reads:
“Subject to other terms of this policy, employees (other than Senior Managers) who are made redundant will be paid severance payments in accordance with the severance pay table set out below. For these purposes a “week’s pay” shall be calculated by reference to employees’ base salary only. Severance payments for all other employees will be at the Company’s discretion.”
81 There then appeared a table of varying severance pay entitlements based on a period of continuous service. For an employee whose continuous service was more than six years but less than seven years, the amount prescribed in that table was 11 weeks’ pay.
82 Mr Cardiff gave evidence that the company was guided by this policy for the provision of severance payments and that the policy articulates a category of employees who have an entitlement. The first thing that would be done would be to look at the contract but if that is silent then the company applied the policy. In terms of senior managers, nothing was applied in the first instance but the company had “a history of adopting the basic framework anyway” and that the table was applied as attached to that policy. He also agreed under
16
cross examination that the policy was applied “at the company’s discretion” in
relation to Senior Managers.83 The plaintiff’s redundancy occurred in the context wherein a total of approximately 50 employees were made redundant. The company was guided by the policy in relation to these employees and applied the table attached to the policy to the plaintiff. This was consistent with Senior Managers being treated as “other employees” as referred to in the last sentence of clause 10.2.
84 There was a reference to compliance with policies in the original contract. Although this appeared to be an obligation imposed on the employer alone it is an indication that it would generally be expected that policies would impact on the employment relationship. The redundancy policy appears to be promulgated in 2002 post the original contract. However, given the “history” of its application, it is likely that the parties would have intended for it to operate in relation to employment contracts entered into in 2007. This is to some extent evident by the way it was applied to 50 employees including the plaintiff as well as the terms of clause 5.
85 In my view, it is appropriate to imply a term to the effect alleged based on the nature and context of the transaction; the policy having been formulated prior to the entry into this contract in 2007. It is legitimate in these circumstances to presume that the parties would intend that the appointment as general manager was to be on terms that this policy would apply.[22] Such a term is “necessary for the reasonable or effective operation of the contract” in the circumstances of the case wherein the company was regularly applying such a policy. To imply such a term makes sense of the way the company operated in relation to all employees including this one and also follows from the past course of dealing.
[22] And cf Reynolds v SouthCorp Wines Pty Ltd (2002) 122 FCR 301 at [62]
86 However, it remains to be considered whether the term was breached in this case.
Was the term breached?
Principles
87 In the case of Rankin[23], Gillard J explained that the employer was under a duty to maintain a relationship of trust and confidence in the performance of the employment contract which he further described as a duty “to act honestly and fairly.” His Honour found no evidence of “wrongdoing” in that case.
[23] Rankin v Marine Power International (2001) 107 IR 117 at 161
88 The obligation of the trust and confidence implied term has also been stated to mean that an employer must treat his employees “fairly”. In the conduct of his business, and in his treatment of his employees, an employer must act “responsibly and in good faith.”[24]
[24] Russell v Trustees of the Roman Catholic Church [2008] NSWCA 217 at [32] citing Eastwood v Magnox [2005] 1 AC 503
89 In the English case of Clark v Nomura[25] the English High Court was concerned with the question of the exercise of an employer’s discretion to pay a bonus. It was said that the discretion should not be exercised “capriciously.” The court rejected a concept of requiring an employer to act reasonably but instead favoured a test of “irrationality” or “perversity” such that “no reasonable person would have exercised his discretion in this way.”
[25] (2000) IRLR 766 and see also Horkulak v Cantor [2005] ICR 402
Application of principles
90 The plaintiff alleged that the defendant failed to pay redundancy payments commensurate with redundancy payments paid to other managers within the Transurban group including:
• a payment to Joan Barber in the vicinity of $990,000; •
a payment to the retiring CFO, Mr Philips, of $1,055,835 which remuneration is said in the annual report of 2006 to “include a termination benefit of $990,000 in recognition of his long term service to the Group”;
•
a payment of an “agreed severance payment of no less than 12 months” to Ms Tenace referred to in correspondence of 6 December 2007;
• a payment in the vicinity of $450,000 to Gary Mann. 91 However, the evidence of Mr Cardiff was─
• that Ms Joan Barber was General Manager and resigned and there was no payment of severance by way of redundancy to her; • that Mr Phillips did not receive any benefit that was severance; • that the basis of the payment to Ms Tenace was that there was a specific contractual entitlement to the payment; • that Mr Mann resigned from his employment and did not receive any amount for severance. 92 It will be recalled that the evidence of Mr Cardiff was that the policy was applied to the plaintiff as a matter of discretion. Further, although the company may be criticised for applying a scale applicable to those more junior than senior managers his evidence was that the company’s remuneration framework focused on providing competitive salaries and bonuses when they were due rather than termination entitlements.
93 On the basis of the evidence above the plaintiff has not established that there has been any miscarriage of discretion within the principles set out earlier. More particularly I am not satisfied on the evidence before me that the discretion was exercised capriciously or such that no reasonable employer could have so exercised the discretion.
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94 It follows that the plaintiff is not entitled to 12 months severance payment as claimed.
95 However, I accept that it is likely that, if the plaintiff had been permitted to remain in his position until May 2009 as he was entitled to do, that he still would have been made redundant and the redundancy policy would still have been applied to him. There is no suggestion that there would have been any other suitable position available to him at that time. However, by May 2009 the plaintiff would have a length of service of over seven years. Accordingly, on the application of the table in the policy, he would be entitled to 13 weeks instead of 11 weeks severance pay.
INCENTIVES PROVISIONS
96 The plaintiff has submitted that the following term should be implied or incorporated by the course of dealing between the parties:[26]
[26] Paragraph 12(e) Amended Statement of Claim
“ the plaintiff would, in addition to existing discretionary Short Term Incentives,
be eligible to:
…(ii) be paid business development participation bonuses recognising his
contribution to specific projects (Project Bonuses)”
97 It is important to distinguish in this case between short term incentives and project bonuses.
Short term incentive plan
Whether term implied
Documents
98 In considering the question of whether the term alleged should be implied, it is important to set out the course of dealing between the parties.
99 It will be recalled that the original contract provided for an annual performance incentive of up to 15 per cent of TEC being available.
100 By correspondence of 11 July 2002 the plaintiff was advised that the Board had approved a performance incentive of $12,000.
101 By correspondence of 1 September 2003 the plaintiff was advised that the Board had approved a performance incentive of $20,000.
102 A document entitled Transurban Group Senior Management Incentive Plan (SMIP) was in evidence dated March 2004. It described that performance incentive for participants was dependent on a multiplier based on two factors: EVA growth and individual performance. The definition of EVA was calculated as revenue less expenses (EBIDTA) less additional capital expenditure x costs of capital.
103 By correspondence dated 27 August, 2004 the plaintiff was advised that the 2004 Performance incentive program had been finalised and that the Board had approved a performance incentive. As the plaintiff was eligible for an uncapped performance incentive under the SMIP his performance incentive payment would be $29,167 with the remaining $5,833 carried over into his bonus bank until next year.
104 In Board Minutes of 24 May 2005 the Board resolved that short term incentive payments for the financial year 2005 were to be determined by reference to a financial performance measure calculated by adjusting EBIDTA to exclude “one-off” and non-operational items.
105 By correspondence of 8 August 2005 the plaintiff was advised that the Board had approved a performance incentive of $27,750. He was further advised:
“ As a participant in the Senior Management Incentive Plan (SMIP) in FY04 a proportion of your payment may have been carried over into your bonus bank for payment in 2005. Changes to the SMIP mean that the bonus bank arrangement will no longer continue, and you will instead receive the total of any PI payment in the year in which it was earned. Your bonus bank carried over from previous years $5833 will be paid along with this year’s PI amount in September. If you have any questions concerning the SMIP scheme please contact Joanne Barber.”
106 By correspondence of 1 August 2006 the plaintiff was advised that the Board
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had approved a performance incentive of $50,000. In addition his eligible performance incentive was increased from a maximum of 15 per cent to a maximum of 20 per cent.
107 By correspondence of 1 August 2007 the plaintiff was advised that the Board had approved a performance incentive of $250,000. “Contained within the above “PI” amount is recognition of your specific contribution towards the acquisition of the Sydney Roads Group and TIL Restructure.”
108 The plaintiff was also advised that the Board had approved an increase in his target PI from 20 per cent to 30 per cent effective from 1 July 2007.
Evidence of Mr Cardiff
109 Mr Cardiff gave evidence that there was a three-stage approach to the award of both short term incentives and project bonuses. Firstly, there was a recommendation by the relevant Manager who recommended the participant list and the quantum of payment regarding those bonuses. It then went to the second step, wherein he and the Managing Director reviewed those bonus recommendations. The third stage was that the Board then made the final determinations.
110 In terms of the short term incentives, the evidence of Mr Cardiff was that although the “SMIP policy” existed in 2004, it became too complicated and was ceased with employees being notified that any moneys sitting in the bonus bank would not be carried over. Thus as reflected in the 2005 Board minutes, the financial performance measure was altered to a revised form of EBITDA. He also explained that “the following year we used costs and revenue and in the 07-08 financial year we used five different metrics.” Mr Cardiff’s evidence was also that Mr Kamp actually presented some of the papers to the Board concerning appropriate financial targets (e.g. the April 2008 Board Report concerning short term incentive measures, targets and projected forecasts for financial year 2008).
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111 Nevertheless, as appears from the correspondence to the plaintiff above, short term incentives continued to be paid albeit based on revised financial performance measures.
112 In terms of the payments made in 2008, the Board had resolved in April 2008 that only 92.5 per cent of the bonus pool would be available for short term incentives. Mr Cardiff explained that in the case of the plaintiff with a TEC of $330,000 this meant that the bonus that he would get if he was paid the full percentage of the 30 per cent (stated in the correspondence of 1 August 2007) would be $96,000. However, if, as occurred in 2008, only 92.5 per cent of the bonus pool was being released, he would only obtain $90,000 (rounded up) which is what he was given.
113 There was also evidence of approval by the Board of “the release of a stretch EBITDA short term incentive bonus pool of $3.8 million for distribution to the senior managers under the enhanced STI plan.”[27] Mr Cardiff claimed that this would be subject to recommendation by the Managing Director or the CEO at the time and that it was only for senior managers. The amount to be paid under this “stretch incentive” was not dependent on any multiplier.
[27] as referred to in a remuneration committee report of May 2008
114 On the basis of the above, I am satisfied that the term alleged to the effect that the plaintiff was eligible to be considered for discretionary short term incentive bonuses should be implied into the contract made in 2007.
115 In terms of short term incentives the plaintiff had regularly received payments for short term incentives; the maximum percentage being tied to his original contract and varied from time to time.
116 In terms of the “stretch scheme” this was specifically targeted at senior managers and would be presumed to apply to any employment arrangement covering a senior manager.
117 In my view it was “necessary for the reasonable or effective operation of the contract” to imply a term that the plaintiff as general manager was eligible to participate in the short term incentive schemes as described by Mr Cardiff.
Whether term breached
118 The plaintiff did not make complaint regarding the “non-stretch” component of the bonus he received.
119 However, the plaintiff’s evidence was that he recalled, on the basis of the performance of the group in the period, that the relevant “multiplier” was 1.7 on the basis of the calculations which he himself put before the Board i.e. group profit exceeded EBITDA by 70 per cent. On this basis he claimed to be entitled to $160,000 if the discretion was properly exercised (being 1.7 times $96,000 where $96,000 was his entitlement based on a “1 times multiplier” of 30 per cent of $330,000).
120 As already described, the evidence of Mr Cardiff was that the incentive stretch plan was not dependent on a multiplier. He also gave evidence that in fact no-one received anything of the extra $3.8 million allocated apparently because the Board was not comfortable with the targets suggested:
“ They [the Board] continued to tell us that they were not comfortable with the methodologies being adopted and the assumptions that went into the EBITDA target and allowed us to come back with some recommendations. We came back with recommendations, the board rejected those and did not allocate out of the enhanced EBITDA pool. The bottom line, no-one got it.”
121 The plaintiff did not suggest that the evidence of Mr Cardiff above should be rejected. More particularly, it was not suggested that the “lack of comfort” of the Board described by Mr Cardiff was irrational, perverse or unreasonable.
122 On the evidence before me I am not satisfied that the discretion to refuse the plaintiff a stretch incentive payment was “wrongful” or “capricious” within the principles set out previously.
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Project bonuses
Whether term implied
Documents
123 By correspondence of 8 August 2005 the plaintiff was advised that a bonus of $40,000 would be paid to reflect his “outstanding contribution to our successful bid and acquisition of the Hills Motorway.”
124 By correspondence of 1 August 2006 the plaintiff was advised that the Board had also approved a project bonus of $125,000 in relation to the successful acquisition of the Pocohontas Parkway in the US.
125 By correspondence of 1 August 2007 the plaintiff was also advised that the Board had approved a performance incentive of $250,000 and that contained within this PI amount was recognition of his contribution towards acquisition of the Sydney Roads Group and the TIL Restructure.
Evidence of Mr Cardiff
126 Mr Cardiff described the system for project bonuses as a Business Generation Incentive Plan (BGIP). Further that it was a plan to recognise and reward those people that generate new business for the company. That it was “a reward scheme based on outcome, not effort. It was designed to incentivise, encourage and motivate senior managers to pursue business development opportunities for our business.”
127 As mentioned already he also described a three step process for the approval of project bonuses.
128 The plaintiff had already received amounts for project bonuses prior to his appointment in 2007. The evidence of Mr Cardiff was that the BGIP was specifically designed to encourage and motivate senior managers. I am therefore satisfied that a term to the effect that the plaintiff would be eligible to be paid discretionary business development participation bonuses should be
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implied. The parties are presumed to have intended such a term on the
appointment of the plaintiff as a senior manager.129 I am also satisfied that the term alleged should be implied because it is “necessary for the reasonable or effective operation of the contract.” The relatively formal system described by Mr Cardiff was clearly in operation and recognised within the company as a reward system for senior managers. It would make the contract work to recognise an entitlement to participate in the scheme, particularly where an employee appeared to be already participating. The previous course of dealing also supported such a term.
Whether term breached
Capital Beltway
130 The plaintiff’s evidence was that this project was concerned with the installation of “hot lanes” on a roadway located in Virginia wherein the tolls went up and down according to congestion. This was very new technology and his involvement in this project was as lead tax adviser for the group. He had to come up with the most tax effective structure which was a little less onerous than Drive (considered below) since there was only one investor to consider, being Transurban Drive. However, there were difficult taxation questions given the Virginia location and he worked in Virginia for five weeks in relation to these issues.
131 The evidence of Mr Brant was that:
(a) the plaintiff’s input on the Capital Beltway scheme (for which he received $58,100) was greater than for Pocohontas (for which he received $125,000)
(b) that the plaintiff’s contribution on Capital Beltway was greater than Mr Hills, also in the finance department, who was allocated a project bonus of $87,088;
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(c) that the $58,000 bonus awarded “looks a little light and that’s in
respect to other individuals as well.”132 Mr Cardiff gave evidence of a meeting of the Remuneration Committee wherein it was resolved to recommend amounts to individuals in accordance with a paper. He then described a “Board approved Belway BGIP List” which included the plaintiff in an amount of $58,059. The evidence of Mr Cardiff was that the plaintiff had not been originally nominated for a Capital Beltway bonus. That following this he met with his managing director who queried why the plaintiff’s name was not on the list. Following further positive discussions with Mr Brant, a final review was conducted and the plaintiff was confirmed for inclusion. He further stated that a handwritten reference to “add Darren Kamp-$50,000 US” on a spreadsheet was his own handwritten notation which spreadsheet is annexed to an undated board report.
133 The plaintiff has not established a miscarriage of the discretion in these circumstances. Although Mr Brant may view the allocation as “light” this does not substantiate an irrational decision. Although the amount awarded is less than for Pochohontas and as compared with others, the evidence of Mr Cardiff suggests that genuine consideration was given to the plaintiff’s entitlement in circumstances where he was not originally nominated.
134 The plaintiff has not established a miscarriage of discretion in relation to the payment of the Capital Beltway bonus.
Drive
135 In terms of Drive, the evidence of the plaintiff was that his role in relation to Drive was to sit with investors and their lawyers and come up with the most efficient vehicle for the individual proposed investor into Drive. This was complex given the different requirements of the different investors (some were private, some institutional or government) and involved many meetings both in Australia and overseas and included a roadshow in the United States.
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136 The evidence of Mr Brant was that the plaintiff had made a “significant” impact. Further that the fact that he had been paid nothing by way of bonuses was “very unreasonable”. He described Mr Howard as being “generously rewarded” at $300,000. He further suggested that Mr Howard probably had conflict with most people in Transurban and the plaintiff was no different. He described how Mr Howard had been the Project Manager of Drive and, towards the end of that project, was taken off the role because he was not able to achieve the objectives, was causing some grievance with external parties, was not able to answer questions and had not adequately dealt with the issues that had come back from potential investors. Mr Howard certainly had the majority of the input early on but, towards the end of the project when the difficult questions of structure and taxation became very important, Mr Kamp was “intricately involved” and actually got one investor, the major investor, who came in “for the 50%”, convinced that their structure was reasonable so that they came on board. He described the plaintiff’s contribution in terms of “getting the end result achieved” as at least equal to that of Mr Howard.
137 Mr Cardiff provided a remuneration committee and board report which contained an unsigned resolution to approve payments under the Business Generation Incentive Plan for Drive as listed therein. The plaintiff was not included on that list. Mr Cardiff claimed there was a process of review wherein he and the managing director reviewed the nominations prior to going to the Board. He claimed there were “lots of people who work on these sort of projects and don’t get a bonus.”
138 Mr Cardiff suggested at one point that the managing director did not believe the plaintiff’s contribution warranted a bonus. However, he also claimed that Mr Brant as project leader had not even nominated the plaintiff for a Drive bonus. This latter matter was never put to Mr Brant and is inherently improbable in the light of Mr Brant’s unchallenged evidence. I do not accept
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this evidence. However, it means that there is no satisfactory evidence
concerning the nomination review process adopted in relation to the plaintiff.139 Under cross examination Mr Cardiff also conceded that he did not have a detailed knowledge of the work and contribution that the plaintiff made to the business generated by Drive.
140 It was suggested by Mr Wheelahan that I should somehow discount the evidence of Mr Brant since he was not involved in the exercise of the discretion. However, Mr Cardiff was not the actual decision-maker. Rather the Board was the ultimate decision-maker and no actual member of the Board was called in the case.
141 Moreover:
• there is nothing to suggest that the court should be restricted to hearing from those “involved in” an allegedly flawed decision- making process; • Mr Cardiff conceded that he had little knowledge of the precise details of the contributions of the plaintiff in relation to project matters.
142 Mr Wheelahan also criticized the plaintiff’s evidence in being unable to document and particularise the precise contribution including, for example, dates of meetings attended.
143 However, as highlighted by the defendant’s own witness, the crucial factor in project bonuses was “outcome” rather than effort.
144 Ultimately the court is left with unchallenged evidence from Mr Brant that the decision to grant a nil bonus was “very unreasonable.” More particularly that the contribution made by the plaintiff to the outcome was productive of an excellent “outcome” in terms of actually bringing the major investor on board.
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145 In the light of evidence from Mr Brant and the plaintiff and the unsatisfactory evidence of Mr Cardiff I am satisfied that the discretion has been miscarried in this case. The decision to award the plaintiff nothing at all appears to have been made without any justification whatsoever. On the facts before me I am satisfied that it is in fact irrational and perverse and could not be made by any reasonable decision-maker.
146 Even if the conduct of the employer was not a breach of the implied term as alleged, the conduct may well have constituted a breach of the duty to maintain a relationship of trust and confidence. However, it is unnecessary to consider this further as I am satisfied that there was a breach of the contractual term as alleged.
147 The difficult question then becomes to assess what should have been awarded to the plaintiff. On the basis of previous decisions, this might be seen to be in the order of $125,000 as claimed. However, commensurate with the fact that the company was moving into a period of heavy redundancies and uncertainty in my view the bonus should be lower. Doing the best I can do I award a figure of $80,000 being less than the amount awarded to the CFO, Mr Brant ($100,000) and more than the plaintiff had previously received in respect of capital beltway ($58,100).
148 I am therefore satisfied that an amount of $80,000 should be awarded to the plaintiff as a bonus on the Transurban Drive project but reject the claim that he is entitled to any other short term incentive or project bonuses.
PAY INCREASE
149 The plaintiff claimed that there was a term of the contract effective from 1 July 2008 that the plaintiff’s TEC would be increased by between 8 per cent and 9 per cent. However, by way of submission this was altered to 5 per cent.
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150 As set out previously, the plaintiff had been annually advised of, and received, pay increases as a result of the “annual review remuneration process” effective from 1 July.
151 The evidence of Mr Cardiff was that there was a three stage process in reviewing the TEC of employees: firstly, nominations were put forward by management; secondly the CEO and Mr Cardiff reviewed the nominations; thirdly, where an employee directly reported to the managing director there would need to be board approval, but not otherwise where approval was undertaken by the manager and Mr Cardiff (as with the plaintiff).
152 In this case there was documentary evidence in the form of a spreadsheet that the plaintiff had been recommended for a new TEC of 5 per cent giving a total of $336,000. Mr Cardiff agreed that the spreadsheet contained a proposal to increase the plaintiff’s TEC by 5 per cent and that this was a spreadsheet where the CEO and he reviewed the salary recommendations and made changes.
153 He further gave evidence that the reasons the plaintiff was not awarded the increase agreed on in discussions with Mr Lynch was “because he hadn’t been awarded it and we had made the decision to terminate his employment.” Further he agreed that the reason the plaintiff wasn’t notified in accordance with the usual practice is because he was terminated first: “I mean it would be pretty harsh to hand a guy a letter to give him a salary increase and then the following day terminate his employment.”
154 I am satisfied that there was an implied term that the plaintiff would be entitled to salary review each year pursuant to an annual review process. This follows from the correspondence addressed to the plaintiff together with the evidence of Mr Cardiff as to the way the TEC salary review process was conducted. The course of conduct in this instance means it was necessary for the reasonable operation of the contract for such a term to be implied.
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155 I am further satisfied that the defendant has breached this term in failing to pay the salary increase which had been determined for the financial year commencing 1 July 2008 as a result of that process. As explained by Mr Cardiff no specific board approval was required; he and Mr Lynch were the decision-makers. The only reason the salary increase was not paid was because of the decision to terminate. This was an irrational and perverse exercise of the discretion to award a salary increase and cannot stand.
156 Even if the plaintiff is not entitled to a salary increase on the basis of a breach of a contractual term, an entitlement would flow on ordinary damages principles and on the basis that the plaintiff would be entitled to reasonable notice. Thus, if the plaintiff had served out his notice period (of nine months) it is likely that the salary increase decided upon would have been notified to him.
157 It follows that the plaintiff is entitled to the difference between the (increased) TEC rate of $336,000 and what he was paid between 1 July 2008 and 22 August 2008.
ANNUAL LEAVE
158 The plaintiff further claimed damages on the basis of the increased TEC in respect of accrued but untaken annual leave.
159 Apart from the question of whether this amount should be calculated on the increased TEC (which I have resolved in the affirmative), the only issue between the parties in respect of this issue was whether superannuation contributions should be excluded.
160 Mr Wheelahan submitted that s235(2) of the Workplace Relations Act 1996 provided that annual leave is to be calculated on the basis of the employee’s “basic periodic rate of pay.” Pursuant to the definitions in s178 “basic periodic rate of pay” meant “a rate of pay for a period worked (however the rate is
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described) that does not include incentive-based payments and bonuses, loadings, monetary allowances, penalty rates or any other similar separately identifiable entitlements.”
161 Mr Rinaldi referred to the case of Dorizzi v IOOF[28], a decision of Judge Spence to the effect that “ordinary pay” meant the total remuneration under a salary package. However, his honour did not have cause to deal with the definition in s178.
[28] Unreported decision of the County Court, 21 November 1996
162 The question then is whether superannuation is properly classified as other “similar separately identifiable entitlements.”
163 Without the benefit of any authority directly on point, the concept of superannuation would appear to be a “separate identifiable entitlement.” However, the payment of superannuation does not appear to be “similar” to the other categories of payments identified. Rather it is different in character to these other items. More particularly, an entitlement to superannuation is not an entitlement to something in the nature of salary and wages and in fact involves payment to a fund rather than an employee. It also does not directly derive from any particular effort or contribution made by an employee such as justifies, for example, an incentive payment.
164 Accordingly I am satisfied that the plaintiff is entitled to accrued but untaken annual leave on the increased salary of $336,000 but including superannuation.
LONG SERVICE LEAVE
165 The defendant accepted that the plaintiff would be entitled to long service leave if the implied term of notice would extend the period of continuous service beyond the accrual date. In this case, the period of nine months would extend the period beyond 29 October 2008 being the 7th anniversary of the plaintiff’s commencement.
166 Again the only issue between the parties (apart from the pay increase issue) was the question of superannuation.
167 Pursuant to the Long Service Leave Act 1992 an employee’s entitlement is calculated on “ordinary pay.” Pursuant to s64 “ordinary pay” means the pay an employee is entitled to receive at the time he or she takes long service leave for working his or her normal weekly hours at his or her ordinary time rate of pay.
168 Where an employee was “working his or her normal weekly hours” he or she would be entitled to superannuation contributions in the normal way.
169 Accordingly I am satisfied that the plaintiff is entitled to long service leave calculated on the basis that superannuation should be included.
SUMMARY OF FINDINGS
170 On the basis of my findings above, the plaintiff is entitled to:
(a)
a notice period of nine months based on a salary of $336,000. From this should be deducted the gratuity; the amount of notice of three months already given as well as the extra 10 days notice given;
(b) two further weeks only in terms of severance pay; (c) an amount of $80,000 as a bonus on the Transurban Drive project
but he is not entitled to any further amount in respect of bonuses;
(d) the difference between the TEC rate of $336,000 and what he was
paid between 1 July 2008 and 22 August 2008;
(e) accrued but untaken annual leave on the increased salary of
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$336,000 on the basis that superannuation should be included;
(f) long service leave calculated on the basis that superannuation should
be included.171 Counsel should confer and provide an appropriate form of order to give effect to these findings.
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[1992] 1 VR 567 at 580-1
Rankin v Marine Power International Pty Ltd (2001) 107 IR 117 at [223]
[1992] 1 VR 567 at 581
Cf Reilly v Praxa Ltd [2004] ACTSC 41 at [22]
See defendant’s written closing submissions at para 10 and the letter dated 6 December 2007 to a Ms Janina Tenace
See for e.g. Haley v Public Transport Corporation of Victoria [1998] VSC 132 and cf Black v Brimbank City Council (1998) 77 IR 405 and Fury v Civil Service Association (1999) 91 FCR 407
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